Overtime Pay for Employees Paid Commission

This post is a part two to a previous post we did for employees in sales known as the overtime exemption for outside sales employees. In this blog, I am going to look at another common overtime exemption for employees working in sales called the Commissioned Sales Employee Exemption. Again, every employee is entitled to overtime compensation unless they fit within a specific overtime exemption – and no, being paid a salary or day rate is not enough to exempt or exclude an employee from being paid overtime.

Ultimately your employer has the burden of proving that you fit within a specific overtime exemption. Your employer must show all of the below in order to classify you as exempt from overtime as a Commissioned Sales Employee. Again, being paid a salary or flat-rate is not enough to exempt you from overtime.

Am I entitled to overtime as a commissioned sales employee? 

First, do not wrongly assume that you are not entitled to overtime just because you are working in “sales” and are paid a “commission.” There are several specific requirements that your employer must show in order to classify an employee exempt as a commissioned sales employee.

• First, the employer-business must be a retail or service establishment.
• Second, the employee’s regular rate of pay must exceed one-and-one half times the applicable minimum wage for every hour worked in each workweek where overtime hours are worked.
• Third, over half of the employee’s compensation must consist of commission.

Each of the above three requirements must be satisfied or the employee must be paid overtime.

Do I Work for a Retail or Service Establishment?

Retail and service establishments are defined as establishments 75% of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the industry. In other words, your employer’s primary business must be selling goods or services to the end-consumer. The Department of Labor’s Regulations explain that to be a retail or service establishment, the business must ordinarily be open to the general public.

Further, the retail establishment exemption requires that the employee work from a physical location. For example, an employee who goes from location-to-location servicing customers is not working for a retail or service establishment and therefore, the employee is entitled to overtime.

For example, an employee who works for a big box electronic retail store would be working for a retail or service establishment – most of the sales are made from a physical location that is made to an end-consumer. On the other hand, someone who works for a wholesaler selling products to a store who then sells the product to a consumer would not be a retail or service establishment.

Ultimately, whether an employer is a “retail or service establishment” centers around whether the employee works out of a fixed location and whether the customers of the employer are the end-users of the product or service.

Think about your employer’s business; where are the products going that your employer is selling? Are they being sold to the end-consumer or are they being sold to another company who then resells them?

Am I paid one-and-one-half times the minimum wage?

If the employee works at a retail or service establishment, then the employer must also demonstrate that the employee’s regular rate of pay exceeds one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked. The current minimum wage is $7.25 per hour; therefore, if an employer wants to utilize the commissioned sales employee exemption, then the employee must pay the employee at least $10.88 per hour.

Do my commissions comprise over half of my total earnings?

More than half the employee’s total earnings in a representative period (at least one month and no more than one year) must consist of commissions.

An employee who earns the same amount each week or who is paid the same amount each week is not earning a bona fide commission and therefore does not qualify for the exemption. For example, an employee who earns “commissions” that are based on a stable sales number (i.e. the commission pay is identical each week) then the employee is likely not exempt from overtime. Here, it is important that the employee receive commissions that are based on performance or productivity – the employer must be able to demonstrate that the employee’s performance or ability affected the amount of commission paid.

Call the Employment and Overtime Attorneys at Herrmann Law

Again, under federal law all covered employers must generally pay employees overtime pay for hours in excess of forty (40) hours in one workweek. It does not matter if you are paid salary, hourly, daily, or commission. However, there are certain exemptions (or exceptions to the overtime law). The exemption discussed in this article is the Commissioned Retail Sales Employee. In order to be exempt from overtime under the Commissioned Sales Employee Overtime Exemption, your employer will need to show that its business is a retail or service establishment and that you were paid at least $10.88 per hour and over half your earnings were comprised of commissions.

Ultimately, you should contact an Employment Lawyer at Herrmann Law to discuss whether you are exempt from overtime. The overtime exemptions are very technical and will require consultation and analysis by a lawyer familiar with overtime law. If you have questions about your exempt status or whether you are entitled to overtime pay, contact the Texas overtime lawyers at Herrmann Law by calling 817-479-9229 or you can contact us online through our website.